In a move that will shock watchers of the depressed technology sector, a chip firm has admitted to taking on staff.

UK chip design company Arm Holdings has admitted to "cautiously" allowing an increase in its workforce, to 738.

While the increase in headcount amounted only to 16 it comes as many tech firms are still struggling to crawl from the wreckage left by the bursting of the dot.com bubble two years ago.

US telecoms equipment maker Lucent and music company Napster were among tech firms announcing job cuts last week.

'Challenging' conditions

Arm's jobs announcement came as the firm revealed pre-tax profits of �15.7m for the first three months of the year, up more than one third on the figure a year before.

The company credited the rise to strong demand for its chip technology, used in devices such as mobile phones.

While warning that overall market conditions remained "challenging", the firm said that interest remained "strong".

"We expect this demand to continue to drive growth in our business," the company said in a statement on Monday.

"Our medium term visibility remains unaffected by the difficult market conditions," the briefing added.

City reaction

But while the results were generally in line with City forecasts, Arm shares were hit by concerns over below-forecast royalty payments, which Arm receives for licensing its technology.

Arm shares plunged 50p - or 19% - to 220p on Monday before recovering to stand at 246.5p, down 8.8%, in late trade.

Arm is one of the few tech firms promoted during the late 1990s dot.com boom to remain in the FTSE 100 elite of leading London-listed firms.